Opinion: Tax cuts won't bring benefits of globalisation

Steve Maharey

Although there is a lot of confusion about the right way to run national economies, for those who support an open as opposed to a closed future the way forward should be clear.

An open world means the state should own less and facilitate more, enable global trade and investment, ensure labour markets are “reasonably” flexible, reduce welfare spending in favour of investing in people and commit to balancing the budget.

These are controversial policies. Their failure to advance the interests of ordinary people is thought to lie behind the current populist revolt that took Britain out of Europe, drove Donald Trump into the American presidency and threatens the future of the European Union.

For those now seeking to make the case for an open world, it is important to accept that the results so far have been very uneven. For the owners of capital and those who have a kitbag of 21st-century skills, openness has worked. For those without capital or the right skills, life has become very insecure.

Unless this division is resolved we can expect to see more instability around the world and, possibly, an end to openness.

There is a way out. When the globalisation agenda was being advanced, sensible people noted that two actions needed to be taken. First, open economies still needed to operate within regulations. These regulations could no longer be confined to national boundaries; there should be agreements that create the right environment for capital and business to operate globally.

Second, every effort had to be made to ensure the people who were displaced by change were brought along. It would be a mistake to simply offer welfare because the nature of the changes taking place meant that they would be reliant on an income transfer for the rest of their lives.

Shift to globalisation
Rather than redistribution, the emphasis needed to be on making it possible for people to get new good jobs. Alongside this core policy there would need to be an agenda that included such initiatives as better schools, more access to higher education, lifelong learning opportunities, a guaranteed living wage, investment in economic development, support for new businesses, good-quality, free health care and the provision of quality early childhood education.

When the shift to globalisation as we know it today took place in the 1970s and 1980s, it was unfortunate that too many governments were followers of a deregulation agenda. Priority was placed on making the world fit for the free movement of business and capital. The many casualties of change were seen as unavoidable collateral damage.

Efforts were made to offset the damage that was being done by many governments from the late 1980s but by then they lacked the resources to make a real difference. This was because deregulation had included cuts to taxes.

Therein lies the problem. To make globalisation work, governments have to have the resources required to bring as many people as possible along while protecting the most vulnerable.

In the halcyon days of globalisation this was not an argument enough people were prepared to listen to. A constituency had been created for a deregulated world but not for doing something practical for the “left behind.”

Hopefully, there is such a constituency now. It would be made up of two groups. The first is the people who now see themselves as part of an open economy and are gaining real rewards.

Price of populism
They now know that unless they are prepared to do something to help their fellow citizens became part of the future they may well fall victim to the kind of backlash that is becoming increasingly common. This should not be seen as an act of charity. If the majority of people are economically active participants in their society, the results benefit everyone.

The second group is the “left behind” themselves. While the populist approach may sound good, it has little to offer in practice because too much of it relies on trying to revive a past that is no longer relevant.

Deep down the people who back politicians like Trump know it is not possible to go back to a version of the “good old days.” Their problem is that they have been sent down a culdesac with no hope of a better life. Offered a way out they would take it.

It is to this constituency that the proposition that more tax is needed could be put to in the form of a new social contract forged between the winners and losers from globalisation.

Remaining open has to go alongside the ability to channel some of the winnings into investment in people. It is not going to work to continue to allow divisions carved into societies some decades ago to continue. It makes no economic, social, cultural or moral sense.

One of the key lessons of the past few years is that globalisation need not and cannot mean that we lose a sense of our national identity. While the world may be increasingly open, the majority of people still live within national boundaries. This fact has been exploited by populist politicians as they bash immigrants and whip up negative nationalism.

It is past time for a more positive approach to be taken. One that makes it clear that we are in this together and that means pooling enough of our resources to ensure a better future for everyone.

Steve Maharey is an independent director and commentator. He is a former vice-chancellor of Massey University and politician.

7 Comments & Questions

Nicely written, Steve. Captuures the situation well. The discontents of globaalisaiton is an issue that was widely discussed internationally at least 15 years back, when protests erupted in Latin America I recall. The call for reform went unheeded, unfortunately, which brings us where we are today.It now crosses naitonal boundaries, making it even more difficult to bring in the reform, as you suggest, without coordination across nations.

The other challenge is that the very people who have benefited most from globalisation do not realise that reform is imperative, for the entire system to survive. For them to resist change is a natural response, but short sighted. The beneficiaries to date must in fact lead the work to change, in their own self interest.

Well its clear what poor old Rodney was up against! I don't think the "Donalds" tax cuts are intended to facilitate globalisation. In one breath Mr Maharey is advocating less govt. and in the next greater taxation. Hard to reconcile the thought process here. Sounds like a Marxist utopia.

'It would be a mistake to simply offer welfare", followed by, "there would need to be an agenda that included such initiatives as a guaranteed living wage".
Only someone associated with a university and a politician could be so vacuous.

You have made a fundamental mistake in your analogue. So i want to lay this counter-argument out in three parts. Firstly, the inherent and intentional failure of Neoliberal/Blairite political ideologies to handle these issues. Secondly, Why offering more education doesn't actually solve anything nor does simply saying that the state needs to provide more services for less make sense or even work. Thirdly, the changing paradigm of globalization, the world economy and a key to why we have nothing to lose.

The inherent failure of Blairite/Clintonite politics, the politics of your former cabinet, comes from the strange economic basis upon which it is based. It attempted to compile the Freshwater economics of Friedman with the compassionate politics of the left, taking liberal social policy with centre right economic policy. The rapid economic destruction which was created by Thatcher and Reagan, then simply exacerbated by the centrist governments since then, has left a deep and slowly rotting wound in a huge portion of every Anglo-Saxon nation-state. It completely deindustrialized large portions of these states, but it provided no structure to support family, community or church other than the all-powerful welfare state. But people need more than mere pittance for life. Capital was enhanced and supported to travel across borders to wherever it is treated best. So you needed to compete to keep the dollars at home and not abroad. If you ever attempted to create tighter regulation or did not completely accommodate the demands of capital, then the money would simply flee the country. So in turn, this enabled the production of goods in foreign countries to save on price. In turn, these goods could be shipped back to the developed nations which were unable to compete for price. So to lower the cost of labour in developed nations, mass immigration was encouraged to fill the farms and factories at the cheapest price possible. It is very similar to the importing of slaves displacing citizen-soldier-farmer-artisans of the Roman Empire.

But when you can't promise economic growth, because it never comes, after basing your entire platform for nearly 30 years on delivering a percentage of GDP. But what does 3% economic growth matter if the population grows at 1.5% per year at 0% interest rates overseas? The interest rates here are only higher to prevent an outflow of foreign capital, but the low interest rates show no confidence in the future. It shows that 10 years after the economic crisis and the false recovery, there is still no believe in the delivery of a better future.

On your proposed citizen entitlements. First ask yourself why so many people attend university? More are attending, but roughly the same number are graduating. Young people, including myself with a BSc in CS+Math, attend university because it is an insurance policy to avoid falling in the ever growing gaps within our society. You argue that we need lifelong education opportunities, but there can only be so many lawyers, doctors, engineers and scientists. Most of my friends who are graduate scientists cannot find work in laboratories nor in Universities. The 5 law graduate friends I have, one has a legal job in discovery and is searching hard for a country lawyer role because of the extreme nepotism and applicant vetting in urban law firms. There is no sense of a better future, or a better life. Just endless managed decline where you have to make your clothes last longer, work longer hours in worse employment with fewer rights and less options than the past. Satisfied with the knowledge that you are completely interchangeable with more new graduates. It is far worse for older people with outdated skills who need to find new professions and need high enough wages to pay for their families. Even then, not everyone is capable of being a doctor, engineer or scientist. Parliament is full of useful idiots and well educated philistines who advocate ridiculous and impossible policies which are middle ground and weak. People want strong leaders who take action, who craft the world anew. They are sick to death of money and moneyed politics dominating their life, sold by well-presented fools who neither tell the truth nor solve anything.

Then there is the subject of global economics and the changing paradigm of machinery in the contemporary period. Machines no longer supplement or complement human labour, but instead replace it. Productivity and corporate profits recovered after the GFC, but employment simply did not. So there are fewer options which provide any semblance of stable work. On top of that, in the hypercompetitive economic conditions, there are few areas in which we have a competitive advantage by geography or skill set. Very few areas, beyond horticulture, agriculture, IT/New Economy sectors, light manufacturing for adding value onto sectors which we have a natural competitive advantage in. So there are very few viable avenues of employment for competition in a hypercompetitive age with large portions of the population who played the game right (myself included as a graduate although I run a tech business) and simply can't fit in or find a decent waged job.

You are at the centre of society, with positions on boards, with wealth and previous title. You have lots to lose, but many of us have absolutely nothing to lose. Why shouldn't we wish for demagogues to save us from this mess?

There are many challenges ahead, and poor leadership doesnt help. Running a country is not an easy job, and we have little help from the present clowns. They will run out of options shortly, and have to make some honest hard choices.

Sustainable food and water appear to be NZ inc natural advantage, and suggest any future investment in education focuses on these two. Scale is not the answer for a small nation like ours; rather bontique industry where scale cant compete.

Value add here, rather than letting other overseas interests take the cream. There should be tax incentives to develop and keep businesses of this nature here.

Housing and dairy farming have done their dash, encouraged through bank overinvestment. A fish farm in the bay of islands, surrounded by wealthy (overseas) owned property, may be just what this country needs to ensure those that should be paying taxes pay some price for the world they have created.